BENGALURU: Realtor’s body Credai said real estate prices has a chance to rise by about 20% in the next one year post demonetisation as builders go slow on new launches, introduction of the new regulatory bill and higher input cost.

New launches are expected to dry up rapidly as realtors adopt a wait and watch approach and customers anticipate a further drop in housing prices. The situation will be aggravated as new approvals will be slow and builders will have to be more compliant with the Real Estate Regulatory Act (RERA) which comes into effect next year.

“The idea of a drop in housing prices by about 20-30% is far-fetched. Builders, at least in Bengaluru, are working on wafer thin PAT (profit after tax) margins of 8-10%. There is no scope of further decline,” Credai chairman Irfan Razack said on Friday.

Razack, who also heads Prestige Estates, added that housing prices have remained depressed in the last few years and have not kept up with inflation. “The only direction for prices is to head north because there will be a constraint in supply due to fewer launches.”

Developers have gone slow on launches in the last few years as sales remain sluggish, inventory piles up, debt levels reach alarming proportions and consumer sentiment remains low. All these have been a drag on a sector which contributes about 7% to India’s GDP and is the second biggest employer after agriculture.

“The RERA will put a lot of unorganised players out of the market as they will not be able to start any project before they have all requisite certificates with them. Moreover approvals have been slow and input cost, including labour cost, is set to go up,” said Razack.

He, however, admitted there will be a minor price correction in the immediate aftermath of the government’s decision to scrap Rs 500 and Rs 1,000 as legal tenders. “The consumer sentiment has of course turned negative but it may result in a drop in price by about 5%, nothing more.”

Bengaluru, according to Razack, will be one of the least affected cities due to demonetisation as it is a predominantly end-user market, driven by home loans unlike the NCR which is mostly speculative. Driven mainly by a salaried class, the dealing is primarily through banking channels.

Sobha managing director J C Sharma said the move by the government would result in lowering of lending rates thus making housing more affordable to all. “We require about 4.2 million homes in the next four years and with supply shortage, prices can only go up,” he said.